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Why hairstylists should report their tips

On Behalf of | Nov 16, 2018 | IRS Issues

People engaged in freelance, creative or self-directed businesses in Georgia often have to pay special attention to their taxes. These cautions can also apply to tipped workers of various kinds. While restaurant workers may often receive tax documents that reflect estimated tipped income, other tipped workers like hairstylists, estheticians and personal care service providers may be tempted to avoid reporting their tips on their annual tax returns. Many stylists are not wealthy and may worry that they can ill-afford to pay extra taxes.

However, reporting tips isn’t just the right thing to do; it’s required under the law. Even a hairstylist who does not report his or her tips could be accused of tax fraud and held accountable if the lack of reporting is discovered. The IRS audit guide for tax returns from people in the beauty industry even lays out an expectation that people should be reporting tipped income from 8 to 15 percent of sales of services. Even so, many tips continue to go unreported. According to IRS estimates, up to $23 billion in tips may go unmentioned on tax returns every year.

Stylists may see little benefit to reporting their tips, but there are also positive consequences. Tax returns are often used as financial documents to show stability and income, so reporting tips can help stylists to get approved for apartments, home loans or auto loans. In addition, people can find greater peace of mind when they are not worried about the potential of an IRS audit.

When someone does receive a notice that their tax returns are being audited, they don’t need to go it alone. A tax law attorney can help a client facing an audit present a strong defense before the IRS.